In recent insurance trade articles, some so-called ‘insurance experts’ have stated that insurers are sitting on the sideline and waiting to join ecosystems. However, the absolute truth is that insurers, regardless of insurance line of business, have always participated in ecosystems.
I wonder if what these complaining (whining?) ‘experts’ really mean is that incumbent insurers are not partnering with startup insurance firms at all or as fast as the investors / entrepreneurs / management of the startups need to generate financial success (of their startup and for their investments).
Before getting into my reasoning, please note that I do NOT equate ecosystems with platforms. They are two different concepts.
Describing an ecosystem
But why do I state that the insurance industry has always participated in ecosystems?
Let’s consider the descriptions of natural and digital ecosystems from Wikipedia:
- Natural: An ecosystem is a community of living organisms in conjunction with the nonliving components of their environment, interacting as a system.
- Digital: A digital ecosystem is a distributed, adaptive, open socio-technical system with properties of self-organization, scalability, and sustainability inspired from natural ecosystems.
An illustrative insurance ecosystem community
Keeping both of the descriptions of digital ecosystem and natural ecosystem descriptions in mind (but leaning more on the digital ecosystem description), an insurance industry ecosystem encompasses a community of participating firms, at a minimum of:
- Independent insurance agents or brokers
- Third-party claim adjusters
- Medical / physical rehabilitation providers
- Property remediation / construction firm contractors (if a property loss is involved)
- Body shops (if a vehicle damage claim is involved)
- Lumber yards, plumbers, electricians (if required to remediate a property loss)
- Outside counsel
- Information providers such as CLUE, MIB, CoreLogic, or Verisk
- Modelers such as LexisNexis, RMS, CoreLogic, or Verisk (yes I know I have CoreLogic and Verisk in two categories.)
- Technology firms providing each of the above participants the requisite software to perform their own firm’s responsibilities.
The visual attempts to capture the richness of an insurer’s ecosystem. Although not part of the visual (it would make the visual too ‘busy’ and unreadable with connecting lines), the ecosystem members provide products or solutions to various insurance functional areas such as (but not limited to) underwriting, claims management, product development, marketing, customer care, or producer management.
Ecosystem participants have their own responsibilities
Each of the above ecosystem member firms have the responsibility to profitably maintain their own business or risk being dropped from the insurance ecosystem.
Each firm has to remain profitable – as each insurance company must – by (hopefully doing all three):
- Continually self-organizing in its own best interests (creating new or eliminating existing alliances and partnerships, acquiring or selling already acquired companies, creating new or eliminating existing functional departments)
- Generating the scale they need at a pace they can manage (bringing new products to existing markets, enhancing existing products, exploring new markets with existing or new products)
- Sustaining its business (providing quality customer care and solutions their clients will be delighted by receiving, hiring required talent, firing non-performers, training employees).
Beyond the requisite priority of remaining profitable (because without profit, no company can keep its employees, hire new employees, create quality customer care, support existing markets, explore new opportunities in new markets), each ecosystem member, including the insurers at the center of their ecosystem (from the insurers’ perspective) must, at least, determine:
- which existing ecosystem members to strengthen ties with through joint product development, marketing ventures, sales calls (and more)
- which existing ecosystem members to weaken ties with or drop from the ecosystem
- the availability of new ecosystem members in the insurers’ existing markets and in any new markets the insurers are exploring.
Wide variety of companies and industries
The insurance ecosystem participants I listed above come from a wide variety of industries. The companies are from the information, modeling, software, retail, medical, automotive, legal, lumber and builder materials, electrical, plumbing, and, of course, insurance and other industries.
The insurance ecosystem is an extremely extensive and robust ecosystem. It always has been, continues to be, and will continue to be a rich ecosystem regardless if startup insurance firms are not part of it.